4.4. Apple and competitive advantage Flashcards
Apple’s unique resources in 1980s-1990s
- Ease of use:
+ user friendly interface
+ plug and play devices (complete solution, complete control; through vertical and horizontal integration) - hardware, software and peripherals allowing the customers to personalise their own preferences
- Buyer loyalty in particular in 2 areas:
+ desktop publishing - superior software such as Aldus (Adobe), PageMaker, laser printer (linked back to plug and play)
+ education - grabbed more than half the market
- brand/design
- ownership of operating system: reduces imitation risk, only alternative standard to IBM
- designing products from scratch (again linked back to complete control)=> core competence
Sculley: cost strategy
- low cost producer of computers with mass market appeal
- mac classic
- powerbook
- newton PDA (personal digital assistant)
- joint venture with IBM to reduce R&D costs
- subcontracting and manufacturing (outsource)
Pros and cons of Sculley’s strategy
Pros:
- drive volumes to cover huge OS investments
Cons:
- competitors catch up on ease of use
- seems overpriced
Problems:
- aims for dual strategy => risky: R&D spendings are high
- increasing industry rivalry - commodisation of computer industry
Jobs’ strategy: Increasing WTP along the value chain
- focus on core markets
- procurement (process of finding, agreeing terms and acquiring goods, services or works from an external source, often via a tendering or competitive bidding process): initially built Macs with IBM CPU called PowerPC but then Intel Insides replaces PowerPC chips - stealing the source of CA of IBM -> shift to Intel chips -> able to produce powerful computers that could also run Microsoft Windows
- design: translucent case, metal cases
- innovation:
- R&D: 12%
- New OS X upgraded every 12 to 18 months
- Software development (iLife suite, Final Cut Pro, Safari, iWork)
- distribution: website and apple stores
- marketing: hype, trendy, emphasis on uniqueness, premium prices
Jobs strategy: Dealing with low customer switching costs
neutralising threats:
- compatible with IBM printers -> makes switching to Apple easier remark: using unique resources to differentiate => willing to pay more due to its design, user-friendliness => so differentiated that some can argue that it was operating in a niche
- End of software licensing to IBM (Increases switching costs to IBM for people who like apple software)
- No “floppy disk” drive, instead CD Rom (can’t switch from Apple to IBM)
Takeaway from Jobs’ strategy
- Jobs has done a great job using the unique resources to differentiate Apple from its competitors.
- The resources have to match the strategy: people are willing to pay more for Apple due to its design, it’s user-friendliness, NOT because its cheaper. Apple does not have any resources that lend themselves to providing products more cheaply than its competitors.
- One could argue that initially Apple was operating in a niche; it temporarily lost its strategy when it was trying to capture the rest of the market…
Mac’s revival is a product of
- halo effect from iPhone and iPod
- poorer performances of competitors - Microsoft in the mid 2000s (failure of Vista)
=> Apple’s market share in the computer business is still only 2-3% (but high margins) => obtained CA
What’s the downside of Apple’s differentiation competitive advantage strategy?
Too dependent on one single product - iPhone
PC industry: Rivalry among incumbents
- open standards: PCs became commodities and manufacturers had to compete on prices, pushing margins down
- High industry fragmentation in the 2000s: no market leaders are strong enough to provide prices stability, an industry in which no single enterprise has large enough share of the market to be able to influence the industry’s direction
- Rapid technological obsolescence
=> Tough competition: Average selling price declined 8% per year from 1999 to 2005
New entrants
- tech: can assemble a PC with little technical knowledge Components: standardized components are widely available
- Investment in facilities: you can do it in your garage
- Distribution: via the internet, pretty cheap and easy
- Customers have rather low switching costs (see success of the “white boxes”)
=> Barriers to entry are very low. Very high threat.
Substitutes
- pdas and smartphones
- tablets
- Connected video game consoles (Playstation 4, Xbox One, Nintendo 3 DS, Playstation Vita) => Can push prices down, in particular as most of them are cheaper than PCs.
However, there are no perfect substitutes yet. Medium threat.
Suppliers
- commodity suppliers: low power
- Intel and Microsoft: high power
- Powerful brands(Intel inside,Microsoft)
- No alternatives/High switching costs for PC makers(need for software compatibility, network effect)
- Roughly, together Intel and Microsoft make USD20 Bn of profit and the PC makers all together USD10 Bn
- => Overall, the suppliers appropriate most of the industry’s profits. High power.
Customers
in 1985: rather low
- brand sensitive
- unsophisticated
- dispersed
in 2000s: high
- sophisticated, experts
- higher volumes
- low switching costs
